World Markets Rise, Aided By Oil Prices

European markets rose strongly Friday as a recovery in the price of oil helped oil stocks, but Wall Street was down after further grim U.S. economic news.

The FTSE 100 index of leading British shares was 201.62 points, or 5.2 percent, higher at 4,063.01, while Germany's DAX was up 158.52 points, or 3.4 percent, at 4,781.33. France's CAC-40 was up 148.92 points, or 4.7 percent, at 3,329.92. Europe's indexes were higher through the day in the wake of the Dow's strong performance Thursday and the recovery on Japan's Nikkei.

On Friday, the Dow Jones index underperformed Europe's indexes, closing 127.04 points, or 1.41 percent, lower at 8,852.22 after further evidence emerged that the U.S. is heading for a deep and protracted recession.

The Commerce Department reported that housing starts fell more than 6 percent in September to an annual rate of 817,000 units, a near 18-year low, while and the University of Michigan said its U.S. consumer confidence index slumped to 57.5 in October from 70.3 the previous month.

"The drop back in U.S. consumer confidence in October suggests that the meltdown in the financial markets, rising unemployment and the continued weakness in housing more than offset any positive boost from lower gasoline prices," said Paul Ashworth, senior U.S. economist at Capital Economics.

It's been an erratic week on Wall Street, with the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, and then rallying 401 points Thursday. The volatility is not providing investors with much relief, but it is a welcome change from last week's seemingly relentless plunge, during which the Dow logged its worst week ever and Wall Street lost about $2.4 trillion in shareholder wealth.

The long-term key to the health of financial markets is whether the flurry of activity by governments over the last week or so can actually break the logjam in credit markets.

There are growing signs the coordinated interest rate reductions announced last week, and massive liquidity boosts by central banks, are beginning to reduce lending rates between banks.

The interbank lending rate for three-month dollar loans fell for the fifth day running, the first weekly decline in three months. It dropped 0.08 percent to 4.42 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.045 percentage points to 5.045 percent.

Though the rates are falling, the differential between the rate at which banks lend to each other and official central bank lending rates remain high, signalling a strong degree of mistrust still exists. In the U.S. the base central bank rate is 1.5 percent, while in the euro area it stands at 3.75 percent.

"Even if the financial maelstrom may be about to abate it is not over," said Russell Jones, global head of fixed income and currency strategy at RBC Capital Markets.

"A serious global recession is 'baked in the cake' and this is bound to mean that there will be further pulses of risk aversion, further traumas for financial sectors and markets and acute pain both for corporate sectors and for individuals," he added.

Though the rescue packages have helped alleviate the pressures on the banking system, threats in the financial system remain, from credit default swaps — which insure against defaults on securities — from the insurance sector and from emerging markets.

Following the bailout of the banks, investor concerns have moved onto the insurance sector. Dutch bank and insurer ING Groep NV was the latest to suffer in the stock markets Friday on media reports that the company is in need of cash. Its shares were down 19 percent at euro8.20 ($10.98).

Concerns about the global economic outlook have taken their toll on oil prices in recent days, which fell Thursday to near 14-month lows below $70 before recovering $1.92 Friday to $71.77.

Friday's modest recovery in the oil price helped some stocks in Europe recover ground, notably BP PLC and Royal Dutch Shell on the FTSE, which both rose 8 percent. Both had suffered major drops Thursday when oil prices dropped steeply.

Despite Friday's rise, oil prices are half what they were just three months ago and that is weighing on countries dependent on oil exports, such as Russia. Its indexes continued their losing streak on Friday, with the MICEX dropping 4.3 percent and the RTS down 6.48 percent.

Earlier, Tokyo's Nikkei 225 stock average advanced 235.27 points, or 2.78 percent, at 8,693.82. The index was still far from recouping Thursday's 11.4 percent loss — its biggest one-day percentage drop since the stock market crash of October 1987. For the week, the Nikkei gained 5 percent, much better than the 24 percent it lost last week.

Compared to the gyrations earlier this week, Asian markets were moderately more stable.

Shanghai's index rose for the first time in a week. But Hong Kong's Hang Seng index dropped over 4 percent to 14,554.21, its lowest level in almost three years as selling accelerated late in the day after banks said they would help investors in Lehman Brothers-backed bonds recouped some of their money. Australia, Singapore and South Korea also closed lower.

In currencies, the dollar declined slightly to 101.14 yen from 101.30 yen late Thursday. The euro was down at $1.3450 from $1.3492.